Transboundary pipeline development and risk mitigation

environmental compliance arguably appears disingenuous when compared with past

practice, the new paradigm in emerging economies is solidly in support of
compliance with international environmental standards. It would appear that in the
post-BTC development world, practitioners are probably confined to a close analysis
of applicable local and national legislation and regulation prior to development
and/or financing, and then a determination as to the ability to achieve robust
compliance. If there are valid reasons why compliance would be questionable (all the
while maintaining compliance with international standards), then there may be
scope for modifying environmental requirements in the applicable host government
agreement. Note that this would also require an in-depth analysis to determine
where such modifying host government agreement sits in the legal hierarchy of the
relevant country. (See the discussion above relating to prevailing legal regimes.)

4.6 Reputational risk and civil society organisations

With BakuTbilisiCeyhan, the project financing highlighted the importance of
managing and having specific commercial accountability for monitoring and
enhancing the reputation of both the project and the sponsoring companies. Quite
early in the BTC financing negotiation process, it became apparent that the rising
importance of civil society organisations (both local and international) and their
influence over various project stakeholders (not least potential lenders) called for a
new model for managing the relationship between reputational risk and commercial
objectives. As stated above, any infrastructure project (particularly onshore pipeline
projects), will inevitably impact on local communities and the environment and
will, therefore, involve an interaction between the underlying business and
potentially thousands of affected people and communities. This gives rise to
reputational risk (and potentially to legal and regulatory risks).32 Even in the absence
of a project financing, this link will continue to prove more significant in a world
which demands increasing accountability from the private sector.33 Layering in a
project financing that involves multinational companies further complicates the
issues, as finance decision makers tend to be driven primarily by political not
economic considerations and thus, like politicians, are very sensitive to the risks
associated with negative reputation. The amplification of reputational risk by civil
society organisations is very real. Failure to manage this aspect of a transborder
project can certainly undermine a financing at any point during the process, and
perhaps the entire project if the investors lose their nerve.
There is no single civil society organisation that focuses specifically on energy
infrastructure projects. Some are committed to impeding future oil and gas projects
and cannot be brought onside under any circumstances; some hope to influence
positive outcomes; and others are prepared to participate in the implementation of

32 Note the Green Alternative claim brought against BakuTbilisiCeyhan and BP in the Georgian courts.
Note also the claim brought before the European Court on Human Rights by the Kurdish Human Rights
Project.
33 In addition, as transnational state oil and gas companies continue their investment trend (particularly
in the developing world), they will be subject to increasing scrutiny by international civil society
organisations, and eventually to international and local legal and regulatory requirements.

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